The world’s major producers of rubber belong to an organizational called The International Rubber Consortium or IRCo for short. Much like the market for petroleum, the consortium is comprised of several countries, mainly developing nations, who produce and export the majority of the world’s natural rubber. These countries previously only included Thailand, Indonesia, and Malaysia whom are responsible for 75% of the world’s rubber exports (Mohindru, 2010). Vietnam, who is not a member of the IRCo, exports 9% of the natural rubber supply, and this is likely to increase in coming years. When the price of rubber dropped to an all time low in 2008, the members of the IRCo agreed to reduce the amount they were exporting to increase the cost of rubber. Vietnam took advantage of these efforts by continuing to export rubber without any regard to their competitors’ price fixing strategy. In turn, Vietnam increased their output and hampered the efforts of IRCo.
The consortium met in 2008 and jointly agreed to reduce production by limiting plantations and tree taping, and asking businesses not to sell rubber at prices that would defeat their goals. The cartel’s goal was to cut production by a sixth of what was originally planned, until prices increased by 25% (Buhi, 2010). During the same time this decision was made the price of synthetic rubber,a substitute to natural rubber, was falling as oil prices decreased. At the same time the outlook for future car sales looked grim as the three American car producers were being bailed out by the U.S. government. The IRCo knew they had a lot to gain by cutting the supply.
The IRCo has taken note of the significance Vietnam now has in rubber industry and has approached them to become a member of their cartel to make their pricing strategies more effective. This is bad news for automakers, which are already struggling from decreased sales in a sluggish economy, and consume 70% of the world’s natural rubber supply (Mohindru, 2010). Vietnam is an ideal country for this cartel as 60% of rubber suppliers are controlled by the government.
References
Arunmas, P. (2008, October 20). Thailand Rubber Cartel To Cut Supply To Shoe Up Rubber Prices. Bangkok Post, p. 2. Retrieved March 20, 2010, from the ProQuest database.
Bhui, A. (2008, December 14). RPT-UPDATE 3-Top rubber producers to cut exports by a sixth . Forbes.com . Retrieved March 26, 2010, from http://www.forbes.com/feeds/afx/2008/12/14/afx5819376.html
Mohindru, S. (2010, March 11). Bad News For Tire Makers . The Wall Street Journal . Retrieved March 26, 2010, from http://online.wsj.com/article/SB1000142405274870379170457
